The profitability study is the M&A-facing benchmark, so the right way to use it is to mirror the buyer's process. This is that workflow; the operational-study equivalent is the GPS usage guide, and the deeper choice of which study fits is the selection guide.
§ 01 · Tier on net revenueThe setup that can't be wrong.
The first move decides whether everything after it is valid: match the agency to the revenue tier using net revenue — gross minus brokerage commissions — not gross revenue, which would push the agency into the wrong tier and invalidate every comparison.
| Tier | Net revenue range |
|---|---|
| 1 | Under $1.25M |
| 2 | $1.25M–$2.5M |
| 3 | $2.5M–$5M |
| 4 | $5M–$10M |
| 5 / 6 | $10M–$25M / Over $25M |
§ 02 · Read the gapAverage and top quartile.
Each comparison shows the agency's result against the benchmark, with the performance gap as the difference — positive is outperforming, negative warrants investigation, near-zero is aligned. The discipline is to read against both reference points: the average shows whether the agency is keeping pace, the top quartile shows the headroom to a premium valuation. A book at the average is fine; a book closing the gap to the top quartile is a multiple-mover.
§ 03 · Prioritize in valuation orderWhere to look first.
Not all gaps matter equally to a buyer, so read them in order of valuation impact. Rule of 20 first — the fastest screen of growth and profitability together. Then EBITDA, the multiplier base; revenue per employee, the efficiency signal; organic growth, the sustainability indicator; and producer productivity, which underwrites book value and renewal capacity. Working the list top-down focuses effort on what actually moves the price rather than what's merely off-benchmark.
The buyer isn't pricing your reported numbers — they're pricing the normalized ones. Run the Pro Forma yourself before listing and you control the narrative; let the buyer run it first and you're negotiating from their math.
§ 04 · Normalize via Pro FormaThe number buyers price.
The last move is the one that changes the figure: Pro Forma adjustment. Cap owner salary at a market rate for the role, cap owner benefits at a reasonable level, remove non-business perks, and strip one-time items. The add-backs typically run $50K–$200K depending on tier, and they raise the EBITDA a multiple is applied to — but only if documented with supporting detail before listing. Pair that with a 3-year average rather than a single year, and compare the agency's trajectory to the industry's, and the result is a defensible, buyer-ready package. The figure it produces is the Book Valuation Engine's deterministic range with named drivers; the variance framework that flags the gaps is the BPS variance guide.
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Terminology on this shelf
- Net revenue
- Gross revenue minus brokerage commission expense — the basis for tier selection and benchmarking.
- Performance gap
- An agency's result minus the benchmark; positive outperforms, negative warrants investigation.
- Priority-metric hierarchy
- The valuation-impact order — Rule of 20, EBITDA, revenue per employee, organic growth, producer productivity.
- Pro Forma adjustment
- Normalizing owner comp and one-time items; add-backs typically $50K–$200K by tier.
- 3-year average
- The trend-adjusted comparison that smooths single-year distortion — the diligence standard.